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March 12, 2012

Despite Strong Markets, Equity Funds See Outflows

Worldwide, bond funds grew by close to $7 billion

Overall, equity funds tracked by EPFR Global posted outflows of $4.3 billion for the week ending March 7. Bond funds took in a net $6.9 billion, as money-market funds had inflows of $5.9 billion.

Despite strong U.S. stock-market performance, retail investors continue to be attracted by dividend-paying stocks. They have committed money to dividend-equity funds during 57 of the 62 weeks since the start of last year, according to EPFR Global.

The Dow Jones index has risen roughly 6% in 2012 through March 9, and the S&P 500 improved about 9%. The Nasdaq has ticked up nearly 15%, according to data compiled by T. Rowe Price. Still, the markets did have their biggest single-day loss in three months on March 6.

As for the developed markets overall, U.S.-equity funds led the way in outflows in dollar terms, with over $5 billion flowing out. Year-to-date inflows, which peaked in early February at $12.3 billion, fell below the $1 billion mark. The bulk of the redemptions came from small- and large-cap ETFs.

Canada-themes funds, however, had their best week in 2012 as oil prices remained high. High energy prices hurt investor sentiment towards Japan, prompting them to pull $443 million from equity funds focused on that country: In early 2012, net outflows now total $1.6 billion, despite a fund-group return of 12% so far this year.

Emerging Markets

At the same time, though, investors continued to move into riskier assets in early March, reports EPFR Global. They gobbled up emerging-market bond and equity funds, while also moving into high-yield and mortgage-back products. In less-risky investments, investors pulled funds from European fund groups, though retail redemptions did fall to its lowest level since mid-2Q11.

Key ETFs with a focus on India are up over 21% year to date. Their Brazilian and Russian counterparts have risen 17% and 23% respectively.

Emerging-market bond funds and global emerging-market equity funds took in over $1 billion for the week ending March 7, the research group says. In addition, mortgage-backed bond funds hit the one-year market for inflows, as high-yield bond funds experienced year-to-date inflows that were nearly three times that of their full-year total for 2011.

Geographically diversified global emerging-market equity funds had inflows of $1.3 billion in early March, and the broader category of emerging-markets equity funds tracked by EPFR Global experienced its longest inflow streak since 4Q10 (despite the first week of net redemptions by retail investors since early January).

Russia equity funds took in over $100 million for the sixth-consecutive week as oil prices remain high and the country’s presidential election delivered the result nearly everyone expected. This helped EMEA equity funds extend their longest inflow streak since a seven-week run ended in early May.

Bond Fund Flows

There was no change to recent patterns during early March when it came to fixed-income funds, says EPFR Global. Investors continued to steer money into the fund groups associated with higher risk and higher returns.

Flows in 2012 hit $23 billion for high-yield products, for instance.

U.S. bond funds focusing on municipal, mortgage backed, high yield and intermediate term debt accounted for over three-quarters of the $4.1 billion this fund group absorbed for the week. Year-to-date inflows now stand at $29.5 billion versus $3.75 billion during the comparable period last year.

Also so far in 2012, U.S. money-market funds recorded outflows of $53.8 billion, as their European counterparts experienced inflows of $3.49 billion versus outflows of $61 billion and inflows of $22.5 billion during the same period last year.

Flows into balanced or lifecycle funds, which invest in both fixed income assets and equities, hit their highest level since the third week of June, the research group says.